if it is a different system than yours and is a factory restore cd it won't work......i.e. dell on a hp but if it is a regular windows xp cd and the same version of pro and not home and both came from the factory with the same service pack then it should install with the keys on the side of the case.
make sure you both have the same version of windows or you'll be out of luck.. you can still activate it it just takes calling microsoft and telling them you upgraded your hard drive from a crash

Yes it will, you would have to use you Product Key and this is copyright violation of Microsoft Software. If she lost the XP cd, you can use your but there might be consequences

If you are just trying to re-format the drive, then there is no problem.
What you cannot do is install and activate the same copy of Windows in two machines.

i guess thats not allowed as the license is under your name if its a legally licensed one, and then that cannot be transferred to your friends computer.

It will install but you can't activate it and if it is not activated it will work for thirty days only after that every time you start computer all you get is a menu asking you to activate or turn off computer.